Wed May 21, 2014

These Days A Penny Doesn't Buy Very Much

And let's go from billions to pennies. The penny occupies a strange spot on the economic landscape: It's worth almost nothing, but not quite. Tomorrow and today, our Planet Money team will be reporting on the penny, starting with this report from Robert Smith and Jacob Goldstein, who set out on the streets of Manhattan with a simple question: Can you buy anything for a penny?

ROBERT SMITH, BYLINE: We started with the guy who runs the fruit stand outside our office.

What if we wanted to buy one cherry?

UNIDENTIFIED MAN: No one cherry. A pound.

SMITH: You have to buy a whole pound?

UNIDENTIFIED MAN: One pound.

JACOB GOLDSTEIN, BYLINE: Fair enough. A few blocks away, we found a store that sells nothing but buttons.

So, what is the cheapest button in the store?

UNIDENTIFIED MAN: Fifty cents.

SMITH: No, smaller. We definitely have to find something smaller.

GOLDSTEIN: All right. Same block as the button store is Trim De Carnival, a store that sells tiny sequins. You know, the things you sew on a dress for, say, Mardi Gras.

SMITH: We walked in and asked Krishna Verna(ph): What is the cheapest thing we can get?

KRISHNA VERNA: Well, you could get a sequin for, like, a penny. The bag is $5 or whatever, you know, and then a single sequin could be, like, a penny.

SMITH: But if somebody came in with a penny and said open that up.

VERNA: No.

SMITH: Oh, you wouldn't do it?

VERNA: No.

SMITH: You just told me it was a penny.

VERNA: No.

SMITH: Why not?

VERNA: It's not worth my time.

GOLDSTEIN: And we should say here, it's not like she's that busy. Mardi Gras was a couple of months ago.

SMITH: Selling something for a penny is not worth Verna's time. The button guy said the space a button takes up in a Manhattan store costs him more than a penny.

GOLDSTEIN: There are super-cheap things in the world - like a little sequin - but people didn't want to sell them to us. At 38th Street Hardware, we found this little flimsy little electrical nut. This right here. Look at those things. Come on.

UNIDENTIFIED WOMAN #1: It's free.

GOLDSTEIN: No.

UNIDENTIFIED WOMAN #1: Yeah.

GOLDSTEIN: So, why not just sell it for, whatever, a penny, two cents.

UNIDENTIFIED WOMAN #1: It's not worth selling. I'd rather keep my customer and just give it to them. Make them happy.

GOLDSTEIN: The value of the good will she gets from giving away the electrical nut is worth more than the few cents she'd sell it for.

SMITH: I'm going to spoil the suspense, here. Bottom line: no one would sell us anything for a penny. But we came as close as you can possibly come.

JIM BENGTSON: This here is a little metal washer with a hole which you put with a screw to help hold it in place.

SMITH: We are at Brothers Hardware. Jim Bengtson is one of the brothers, and he's showing us a tiny washer. How much does it cost?

BENGTSON: Two cents.

SMITH: Two cents. Two cents for this thing. By far, the cheapest thing we've found in Manhattan. Do we know who makes this?

BENGTSON: It's made in China. Probably some Chinese guy.

JIM: My name? Oh, I'm Jim(ph). Jim.

SMITH: What is the name of your company?

JIM: Ningbo Exact Fasteners Company Limited.

GOLDSTEIN: Ningbo Exact Fasteners Company Limited of Ningbo, China, specializes in making the washers like the one we bought. We called them because we wanted to know: how could you sell this thing for two cents? They're very inexpensive, and I'm...

JIM: Oh, very cheap. You mean cheap.

GOLDSTEIN: Cheap - I do mean cheap. They're very cheap. Think of all that has to happen to get this washer to a hardware store in Manhattan. You have to dig the metal out of the ground, turn it into steel, make the steel into a washer, package it, get it onto a ship and send it across the world.

SMITH: And then you have to get it off the ship. You have to get it to the store, put on the shelf in that little box, and all of this for two cents.

GOLDSTEIN: How is all this possible? Well, the labor is cheap. The workers at Exact Fastener make about $700 a month, Jim told us. And, of course, no one has a patent on washers, so lots of companies are competing to sell washers as cheaply as possible.

SMITH: And probably the biggest reason washers are so cheap: volume. Ningbo Exact Fastener Company Limited sells washers by the ton. And I don't mean this is a metaphor. The minimum order: one ton.

GOLDSTEIN: I asked Jim, how many washers do you get in a ton?

JIM: Seven hundred and twenty thousand, yes.

GOLDSTEIN: Seven hundred and twenty thousand washers?

JIM: Yes.

GOLDSTEIN: That's a lot. If you buy a ton of washers, one penny will get seven of the little guys. Factor in shipping, a tiny bit of profit for everyone along the way, and you get what just might be the smallest transaction you can make in New York City. One washer: two pennies.